Consumption and real exchange rates in professional forecasts

Michael Devereux, Gregor Smith and James Yetman

Journal of International Economics, 2012, vol. 86, issue 1, 33-42

Abstract: Standard models of international risk sharing with complete asset markets predict a positive association between relative consumption growth and real exchange-rate depreciations across countries. The striking lack of evidence for this link — the consumption/real-exchange-rate anomaly or Backus–Smith puzzle — has prompted research on risk-sharing indicators with incomplete asset markets. That research generally implies that the association holds in forecasts, rather than realizations. Using professional forecasts for 28 countries for 1990–2010 we find no such association, whether for floating nominal exchange rate regimes, fixed exchange rates, or common currencies, thus deepening the puzzle.

Keywords: International risk sharing; Backus–Smith puzzle; Consumption/real exchange-rate anomaly (search for similar items in EconPapers)
JEL-codes: F37 F41 F47 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (22)

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Related works:
Working Paper: Consumption and real exchange rates in professional forecasts (2009)
Working Paper: Consumption and Real Exchange Rates in Professional Forecasts (2009)
Working Paper: Consumption And Real Exchange Rates In Professional Forecasts (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:86:y:2012:i:1:p:33-42

DOI: 10.1016/j.jinteco.2011.08.014

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